The sale of City National the last big, locally controlled bank in Los Angeles to Royal Bank of Canada could be a boon to other Southern California banks seeking buyers, or clients.
Local bankers are still getting over their surprise that Russell Goldsmith, the 64-year-old chairman and CEO of City National, agreed to sell the legendary bank, known for its Hollywood cachet. Although publicly traded, City National is widely regarded as a family business; Goldsmith and his father, Bram, own roughly 13% of the bank. And it was the last major bank that Los Angeles could call its own after Wells Fargo acquired First Interstate in 1996.
Southern California bankers will try to pick up any business that could fall out as a result of the merger. And with one less big bank to buy in the lucrative Southern California market, remaining target institutions also may command greater scarcity value.
"When there are market changes like this, it creates opportunity for both staff and clients," said Frank Mercardante, the president and CEO of Vibra Bank in Chula Vista, Calif., which itself is being sold to the $209 million-asset Pacific Commerce Bank. "Everybody will gather around and see where they find a weak spot."
Daniel Walker, the CEO of Farmers and Merchants Bank of Long Beach, said he expects to get calls from high-net-worth individuals who may move from City National.
"Each time a family business disappears, we have been the recipient of relationships immediately following those departures," said Walker. "They're delighted with the opportunity to speak to the CEO or president. My name will be the first on the list."
Farmers and Merchants, with $5.6 billion in assets, will now be the largest locally owned bank a sharp drop from City National's $33 billion.
Richard Cupp, a well-known California banker and turnaround specialist who left Orient Bancorp in San Francisco at yearend, said the deal highlights the paucity of large regional banks in California.
"A bank like City National Bank really stood by itself. They were not like everybody else," he said. "There's really no second place. If there's any concern about opportunities for other banks to step in, it would be to compete for City National's customers, which will still be very hard to dislodge."
Chris Myers, the president and CEO of CVB Financial Corp. and Citizens Business Bank in Ontario, Calif., said even though Royal Bank of Canada lacks a major presence in California, City National will keep a strong hold on its niche businesses, particularly in entertainment.
"I don't think in the short run we'll see a lot of changes," Myers said. "This is one of the true treasures on the West Coast, so there's a scarcity value there. As far as the price, this sets the tone for what a successful middle market bank will sell for in the market today. People look to this as changing the scope of what we've seen with sellers."
Since Goldsmith would remain chairman and CEO of the bank and would head RBC's U.S. wealth management unit, there is an expectation that the bank will hold tightly to those businesses that made the bank famous. He and his father have agreed to hold at least 50% of their new RBC shares for three years after the deal closes.
Casey Haire, a senior vice president at the investment bank Jefferies, said he can count on one hand the number of independently owned banks anywhere in the U.S. with assets between $30 billion to $40 billion.
"There's a scarcity value here, definitely," Haire said. "City National is very unique."
With the deal made last year to sell OneWest Bank in Pasadena to CIT Group for $3.4 billion, only a handful of regional Southern California banks will soon remain.
They include the $16 billion-asset PacWest Bancorp in Los Angeles; the $5.5 billion-asset Banc of California in Irvine; and the $7.4 billion-asset CVB Financial in Ontario.
Banks with assets over $2.5 billion, at least in Southern California, are very much aware of their worth, some analysts said. Still, bank valuations are on the rise generally and City National's outsized premium could be an outlier.
With its niches in entertainment finance and wealth management, City National was able to command a much higher premium from a picky buyer.
"Everybody would like to think they're worth more but some of these smaller institutions have more generic businesses," said Mark Mason, the president and CEO of Home Street Bank in Seattle, which bought a small California bank, Simplicity Bancorp, last year. "I don't believe it really changes the landscape for other premiums to institutions in the marketplace because no one ever thought there would be a sale of City National and RBC is not a frequent acquirer."
Richard Levenson, the president of the San Diego investment bank Western Financial Corp, said he is concerned about further consolidation as U.S. banks move toward a European model of having a few very large banks.
"As a community banker, I think small businesses may be less served by a much larger organization," Levenson said. "It's pretty hard to get down to the grass-roots type businesses and service them."
California bankers were all eager to learn why City National decided to sell. (The bank did not return calls or emails Thursday.) Some speculated that a lack of a clear successor to Goldsmith may have played a role.
"There's no clear No. 2 and succession has been a question mark," said Haire at Jefferies.
Cupp suspected a more basic motivation.
"Everyone wants to know why they sold, and I think it was price," he said.
Robert Barba contributed to this story.